Editorial
Monetary Policy, the Federal Reserve, and the National Debt Problem
The following testimony was delivered before the House of Representatives Subcommittee on Domestic Monetary Policy and Technology, chaired by Congressman Ron Paul (R-Texas), on "Monetary Policy and the Debt Ceiling: Examining the Relationship between the Federal Reserve and Government Debt," in Washington, D.C. on May 11, 2011:
"I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared . . . To preserve our independence, we must not let our rulers load us with public debt . . . we must make our choice between economy and liberty or confusion and servitude . . . If we run into such debts, we must be taxed in our meat and drink, in our necessities and comforts, in our labor and in our amusements . . . If we can prevent the government from wasting the labor of the people, under the pretense of caring for them, they will be happy." – Thomas Jefferson
Government Debt and Deficits
The current economic crisis through which the United States is passing has given a heightened awareness to the country's national debt. After a declining trend in the 1990s, the national debt has dramatically increased from $5.7 trillion in January 2001 to $10.7 trillion at the end of 2008, to over $14.3 trillion through April of 2011. The debt has reached 98 percent of 2010 U.S. Gross Domestic Product.
The approximately $3.6 trillion that has been added to the national debt since the end of 2008 is more than double the market value of all private sector manufacturing in 2009 ($1.56 trillion), more than three times the market value of spending on professional, scientific, and technical services in 2009 ($1.07 trillion), and nearly five times the amount spent on non-durable goods in 2009 ($722 billion). Just the interest paid on the government's debt over the first six months of the current fiscal (October 2010-April 2011), nearly $245 billion, is equal to more than 40 percent of the total market value of all private sector construction spending in 2009 ($578 billion).[1]
This highlights the social cost of deficit spending, and the resulting addition to the national debt. Every dollar borrowed by the United States government, and the real resources that dollar represents in the market place, is a dollar of real resources not available for use in private sector investment, capital formation, consumer spending, and therefore increases and improvements in the quality and standard of living of the American people.
In this sense, the government's deficit spending that cumulatively has been increasing the national debt has made the United States that much poorer than it otherwise could have and would have been, if the dollar value of these real resources had not been siphoned off and out of use in the productive private sectors of the American economy.
What has made this less visible and less obvious to the American citizenry is precisely because it has been financed through government borrowing rather than government taxation. Deficit spending easily creates the illusion that something can be had for nothing. The government borrows "today" and can provide "benefits" to various groups in the society in the present with the appearance of no immediate "cost" or "burden" upon the citizenry.
Yet, whether acquired by taxing or borrowing, the resulting total government expenditures represent the real resources and the private sector consumption or investment spending those resources could have financed that must be foregone. There are no "free lunches," as it has often been pointed out, and that applies to both what government borrows as much as what it more directly taxes to cover its outlays.
What makes deficit spending an attractive "path of least resistance" in the political process is precisely the fact that it enables deferring the decision of telling voter constituents by how much taxes would otherwise have to be increased, and upon whom they would fall, in the "here and now" to generate the additional revenue to pay for the spending that is financed through borrowing.[2]
But as the recent fiscal problems in a number of member nations of the European Union have highlighted, eventually there are limits to how far a government can try to hide or defer the real costs of all that it is providing or promising through its total expenditures to various voter constituent groups. Standard & Poor's recent decision to downgrade the U.S. government's prospective credit rating to "negative" shows clearly that what is happening in parts of Europe can happen here.
And given current projections by the Congressional Budget Office, the deficits are projected to continue indefinitely into future years and decade, with the cumulative national debt nearly doubling from its present level.[3] In addition, whether covered by taxes or deficit financing, these debt estimates do not include the federal government's unfunded liabilities for Social Security and Medicare through most of the 21st century. In 2009, the Social Security and Medicare trust funds were estimated to have legal commitments under existing law for expenditures equal to at least $43 trillion over the next seventy-five years.[4] Others have projected this unfunded liability of the United States government to be much higher – possibly over $100 trillion.[5]
The Federal Reserve and the Economic Crisis
The responsibility for a good part of the current economic crisis must be put at the doorstep of America's central bank, the Federal Reserve. By some measures of the money supply, the monetary aggregates (MZM or M-2) grew by fifty percent or more between 2003 and 2007. This massive flooding of the financial markets with huge amounts of liquidity provided the funds that fed the mortgage, investment, and consumer debt bubbles in the first decade of this century. Interest rates were pushed far below any historical levels.
For a good part of those five years, according to the St. Louis Federal Reserve Bank, the federal funds rate (the rate of interest at which banks lend to each other), when adjusted for inflation – the "real rate" – was either negative or well below two percent. In other words, the Federal Reserve supplied so much money to the banking sector that banks were lending money to each other for free for a good part of this time. It is no wonder that related market interest rates were also pushed way down during this period.[6]
Market interest rates are supposed to tell the truth. Like any other price on the market, interest rates are suppose to balance the decision of income earners to save a portion of their income with the desire of others to borrow that savings for various investment and other purposes. In addition, the rates of interest, through the present value factor, are meant to limit investment time horizons undertaken within the available savings to successfully bring the investments to completion and sustainability in the longer-term.
Due to the Fed's policy, interest rates were not allowed to do their "job" in the market place. Indeed, Fed policy made interest rates tell "lies." The Federal Reserve's "easy money" policy made it appear, in terms of the cost of borrowing, that there was more than enough real resources in the economy for spending and borrowing to meet everyone's consumer, investment and government deficit needs far in excess of the economy's actual productive capacity.[7]
The housing bubble was indicative of this. To attract people to take out loans, banks not only lowered interest rates (and therefore the cost of borrowing), they also lowered their standards for credit worthiness. To get the money, somehow, out the door, financial institutions found "creative" ways to bundle together mortgage loans into tradable packages that they could then pass on to other investors. It seemed to minimize the risk from issuing all those sub-prime home loans, which we now see were really the housing market's version of high-risk junk bonds. The fears were soothed by the fact that housing prices kept climbing as home buyers pushed them higher and higher with all of that newly created Federal Reserve money.
At the same time, government-created home-insurance agencies like Fannie Mae and Freddie Mac were guaranteeing a growing number of these wobbly mortgages, with the assurance that the "full faith and credit" of Uncle Same stood behind them. By the time the Federal government formally had to take over complete control of Fannie and Freddie in 2008, they were holding the guarantees for half of the $10 trillion American housing market.[8]
Low interest rates and reduced credit standards were also feeding a huge consumer-spending boom that resulted in a 25 percent increase in consumer debt between 2003 and 2008, from $2 trillion to over $2.5 trillion. With interest rates so low, there was little incentive to save for tomorrow and big incentives to borrow and consume today. But, according to the U.S. Census Bureau, during this five-year period average real income only increased by at the most 2 percent. Peoples' debt burdens, therefore, rose dramatically.[9]
The easy money and government-guaranteed house of cards all started to come tumbling down in the second half of 2008. The Federal Reserve's response was to open wide the monetary spigots even more than before the bubbles burst.
The Federal Reserve has dramatically increased its balance sheet by expanding its holding of U.S. government securities and private-sector mortgage-back securities to the tune of around $2.3 trillion. Traditional Open Market Operations plus its aggressive "quantitative easing" policy have increased bank reserves from $94.1 billion in 2007 to $1.3 trillion by April 2011, for a near fourteen-fold increase, and the monetary basis in general has expanded from $850.5 billion in 2007 to $2,242.9 trillion in April of 2011, for a 260 percent increase. The monetary aggregates, MZM and M-2, respectively, have grown by 28 percent and 21.6 percent over this same period.[10]
In the name of supposedly preventing a possible price deflation in the aftermath of the economic boom, Fed policy has delayed and retarded the economy from effectively readjusting and re-coordinating the sectoral imbalances and distortions that had been generated during the bubble years.[11] Once again interest rates have been kept artificially low. In real terms, the federal funds rate and the 1-year Treasury yield have been in the negative range since the last quarter of 2009, and at the current time is estimated to be below minus two percent.
This has prevented interest rates from informing market transactors what the real savings conditions are in the economy. So, once again, the availability of savings and the real cost of borrowing is difficult to discern so as to make reasonable and rational investment decisions, and not to foster a new wave of misdirected and unsustainable private sector investment and financial decisions.
The housing market has not been allowed to fully adjust, either. With so much of the mortgage-backed securities being held off the market in the portfolio of the Federal Reserve, there is little way to determine any real market-based pricing to determine their worth or their total availability so the housing market can finally bottom out with clearer information of supply and demand conditions for a sustainable recovery.
This misguided Fed policy has been, in my view, a primary factor behind the slow and sluggish recovery of the United States economy out of the current recession.
Federal Reserve Policy and Monetizing the Debt
Many times in history, governments have used their power over the monetary printing press to create the funds needed to cover their expenses in excess of taxes collected. Sometimes this has lead to social and economic catastrophes.[12]
Monetizing the debt refers to the creation of new money to finance all or a portion of the government's borrowing. Since the early 2008 to the present, Federal Reserve holdings of U.S. Treasuries have increased by about 240 percent, from $591 billion in March 2008 to $1.4 trillion in early May 2011, or a nearly $1 trillion increase. In the face of an additional $3.6 trillion in accumulated debt during the last three fiscal years, it might seem that Fed policy has "monetized" less than one-third of government borrowing during this period.
However, the Fed's purchase of mortgage-backed securities, no less than its purchase of U.S. Treasuries, potentially increases the amount of reserves in the banking system available for lending. And since 2008, the Federal Reserve had bought an amount of mortgaged-backed securities that it prices on its balance sheet as being equal about $928 billion.
The $1.4 trillion increase in the monetary base since the end of 2007, from $850.5 billion to $2.2 trillion, has increased MZM measurement of the money supply by $2,161.1, or an additional $769 billion dollars in the economy above the increase in the monetary base. This is an amount that is 83 percent of the dollar value of the $927 billions in mortgage-backed securities.
Due to the "money multiplier" effect – that under fractional reserves, total new bank loans are potentially a multiple of the additional reserves injected into the banking system – it is not necessary for the Fed to purchase, dollar-for-dollar, every additional dollar of government borrowing to generate a total increase in the money supply that may be equal to the government's deficit.
Thus, it can be argued that Fed monetary policy has succeeded, in fact, in generating an increase in the amount of money in the banking system that is equal to two-thirds of the government's $3.6 trillion of new accumulated debt.
That the money multiplier effect has not been as great as it might have been, so far, is because the Federal Reserve has been paying interest to member banks to not lend their excess reserves. This sluggishness in potential lending has also been affected by the general "regime uncertainty" that continues to pervade the economy. This uncertainty concerns the future direction of government monetary and fiscal policy. In an economic climate in which it difficult to anticipate the future tax structure, the likely magnitude of future government borrowing, and the impact of new government programs, hesitancy exists on the part of both borrowers and lenders to take on new commitments.
But the monetary expansion has most certainly has been the factor behind the worsening problem of rising prices in the U.S. economy and the significant fall in the value of the dollar on the foreign exchange markets.
The National Debt and Monetary Policy
It is hard for Americans to think of their own country experiencing the same type of fiscal crisis that has periodically occurred in "third world" countries. That type of government financial mismanagement is supposed to only happen in what used to be called "banana republics."
But the fact is, the U.S. is following a course of fiscal irresponsibility that may lead to highly undesirable consequences. The bottom line truth is that over the decades the government – under both Republican and Democratic leadership – has promised the American people, through a wide range of redistributive and transfer programs and other on-going budgetary commitments, more than the U.S. economy can successfully deliver without seriously damaging the country's capacity to produce and grow through the rest of this century.
To try to continue to borrow our way out of this dilemma would be just more of the same on the road to ruin. The real resources to pay for all the governmental largess that has been promised would have to come out of either significantly higher taxes or crowding out more and more private sector access to investment funds to cover continuing budget deficits. Whether from domestic or foreign lenders, the cost of borrowing will eventually and inescapably rise. There is only so much savings in the world to fund private investment and government borrowing, particularly in a world in which developing countries are intensely trying to catch up with the industrialized nations.
Interest rates on government borrowing will rise, both because of the scarcity of the savings to go around and lenders' concerns about America's ability to tax enough in the future to pay back what has been borrowed. Default risk premiums need not only apply to countries like Greece.
Reliance on the Federal Reserve to "print our way" out of the dilemma through more monetary expansion is not and cannot be an answer, either. Printing paper money or creating it on computer screens at the Federal Reserve does not produce real resources. It does not increase the supply of labor or capital – the machines, tools, and equipment – out of which desired goods and services can be manufactured and provided. That only comes from work, savings and investment. Not from more green pieces of paper with presidents' faces on them.
However, what inflation can do is:
· Accelerate the devaluation of the dollar on the foreign exchange markets, and thereby disrupting trading patterns and investment flows between the U.S. and the rest of the world;
· Reduce the value, or purchasing power, of every dollar in people's pockets throughout the economy as prices start to rise higher and higher;
· Undermine the effectiveness of the price system to assist people as consumers and producers in making rational market decisions, due to the uneven manner in which inflation impacts of some prices first and effects others only later;
· Potentially slow down capital formation or even generate capital consumption, as inflation's uneven effects on prices makes it difficult to calculate profit from loss;
· Distort interest rates in financial markets, creating an imbalance between savings and investment that sets in motion the boom and bust of the business cycle;
· Create incentives for people to waste their time and resources trying to find ways to hedge against inflation, rather than devote their efforts in more productive ways that improve standards of living over time;
· Bring about social tensions as people look for scapegoats to blame for the disruptive and damaging effects of inflation, rather than see its source in Federal Reserve monetary policy;
· Run the risk of political pressures to introduce distorting price and wage controls or foreign exchange regulations to fight the symptom of rising prices, rather than the source of the problem – monetary expansion.
What is To Be Done?
The bottom line is, government is too big. It spends too much, taxes too heavily, and borrows too much. For a long time, the country has been trending more and more in the direction of increasing political paternalism. Some people argue, when it is proposed to reduce the size and scope of government in our society, that this is breaking some supposed "social contract" between government and "the people."
The only workable "social contract" for a free society is the one outlined by the American Founding Fathers in the Declaration of Independence and formalized in the Constitution of the United States. This is a social contract that recognizes that all men are created equal, with governmental privileges and favors for none, and which expects government to respect and secure each individual's right to his life, liberty, and honestly acquired property.
The reform agenda for deficit and debt reduction, therefore, must start from that premise and have as its target a radical "downsizing" of government. That policy should plan to reduce government spending across the board in every line item of the federal budget by 10 to 15 percent each year until government has been reduced in size and scope to a level and a degree that resembles, once again, the Founding Father's conception of a free and limited government.[13]
A first step in this fiscal reform is to not increase the national debt limit. The government should begin, now, living within its means – that is, the taxes currently collected by the Treasury. In spite of some of the rhetoric in the media, the U.S. need not run the risk of defaulting or losing its international financial credit rating. Any and all interest payments or maturing debt can be paid for out of tax receipts. What will have to be reduced are other expenditures of the government.
But the required reductions and cuts in various existing programs should be considered as the necessary "wake-up call" for everyone in America that we have been living far beyond our means. And as we begin living within those means, priorities will have to be made and trade-offs will have to be accepted as part of the transition to a smaller and more constitutionally limited government.
In addition, the power of monetary discretion must be taken out of the hands of the Federal Reserve. The fact is, central banking is a form of monetary central planning under which it is left in the hands of the members of the Board of Governors of the Federal Reserve to "plan" the quantity of money in the economy, influence the value or purchasing power of the monetary unit, and manipulate interest rates in the loan markets.
The monetary central planners who run the Federal Reserve have no more or greater knowledge, wisdom or ability that those central planners in the old Soviet Union. The periodic recurrence of the boom and bust of the business cycle demonstrates that there is no way for them to get it right – in spite of them saying, again and again, that "next time" they will get it right.
It is what the Nobel Prize-winning, Austrian economist, Friedrich A. Hayek, once called a highly misplaced "pretense of knowledge." That is why in a wide agenda for reform, the goal should be to move towards a market-based monetary system, the first step in such an institutional change being a commodity-backed monetary order such as a gold standard.[14]
And in the longer-run serious consideration must be given the possibilities of a monetary system completely privatized and competitive, without government control, management, or supervision.[15]
The budgetary and fiscal crisis right now has made many political issues far clearer in people's minds. The debt dilemma is a challenge and an opportunity to set America on a freer and potentially more prosperous track, if the reality of the situation is looked at foursquare in the eye.
Otherwise, dangerous, destabilizing, and damaging monetary and fiscal times may be ahead.
End Notes
[1] The 2011 Statistical Abstract: The National Data Book (Washington, D.C., U.S. Census Bureau, 2011), Table 669.
http://www.census.gov.compendia/statab/2011/tables/11s0669.pdf.
[2] Richard M. Ebeling, Why Government Grow: The Modern Democratic Dilemma," AIER Research Reports, Vol. LXXV, No. 14 (Great Barrington, MA: American Institute for Economic Research, August 4-18, 2008); James M. Buchanan and Richard E. Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes (New York: Academic Press, 1977); and earlier, Henry Fawcett and Millicent Garrett Fawcett, Essays and Lectures on Social and Political Subjects (Honolulu, Hawaii: University Press of the Pacific, [1872] 2004), Ch. 6: "National Debts and National Prosperity," pp. 125-153.
[3] The Budget and Economic Outlook: Fiscal Years 2011 to 2021 (Washington, D.C.: Congressional Budget Office, January 27, 2011)
[4] Richard M. Ebeling, "Brother, Can You Spare $43 Trillion? America's Unfunded Liabilities," AIER Research Reports, Vol. LXXVI, No. 3 (Great Barrington, MA: American Institute for Economic Research, March 2, 2009), pp. 1-3.
[5] Michael D. Tanner, "The Coming Entitlement Tsunami." April 6, 2010. http://www.cato.org/pub_display.php?pub_id=11666 (accessed May 5, 2011).
[6] For more details, see, Richard M. Ebeling, "The Financial Bubble was Created by Central Bank Policy," American Institute for Economic Research, November 5, 2008, http://www.aier.org/research/briefs/667-the-financial-bubble-was-created-by-central-bank-policy (accessed on May 5, 2011).
[7] See, Richard M. Ebeling, "Market Interest Rates Need to Tell the Truth, or Why Federal Reserve Policy Tells Lies," in Richard M. Ebeling, Timothy G. Nash, and Keith A. Pretty, eds., In Defense of Capitalism (Midland, MI: Northwood University Press, 2010) pp. 57-60; http://defenseofcapitalism.blogspot.com/2009/12/market-interest-rates-need-to-tell.html
[8] Thomas Sowell, The Housing Boom and Bust (New York: Basic Books, 2010); Johan Norberg, Financial Fiasco (Washington, D.C.: Cato Institute, 2009).
[9] Richard M. Ebeling, "Is Consumer Credit the Next Bomb in the Economic Crisis?" American Institute for Economic Research, October 22, 2008, http://www.aier.org/research/briefs/599-consumer-credit-the-next-qbombq-in-the-economic-crisis (accessed May 5, 2011).
[10] Monetary Trends (St. Louis, MO: St. Louis Federal Reserve, May 2011)
[11] See, Richard M. Ebeling, "The Hubris of Central Bankers and the Ghosts of Deflation Past" July 5, 2010, http://defenseofcapitalism.blogspot.com/2010/07/hubris-of-central-bankers-and-ghosts-of.html (accessed May 5, 2011)
[12] See, Richard M. Ebeling, "The Lasting Legacies of World War I: Big Government, Paper Money, and Inflation," Economic Education Bulletin, Vol. XLVIII, No. 11 (Great Barrington, MA: American Institute for Economic Research, November 2008), for a detailed example of the German and Austrian instances of monetary-financed inflationary destruction following the First World War.
[13] See, Richard M. Ebeling, "The Cost of the Federal Government in a Freer America," The Freeman: Ideas on Liberty (March 2007), pp. 2-3; http://www.thefreemanonline.org/from-the-president/the-cost-of-the-federal-government-in-a-freer-america/ (accessed May 5, 2011).
[14] See, Richard M. Ebeling, "The Gold Standard and Monetary Freedom," March 30, 2011, http://defenseofcapitalism.blogspot.com/2011/03/gold-standard-and-monetary-freedom-by.html
[15] See, Richard M. Ebeling, "Real Banking Reform? End the Federal Reserve," January 22, 2010, http://defenseofcapitalism.blogspot.com/2010/01/real-banking-reform-end-federal-reserve.html
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Posted by Bischoff on 05/16/11 10:19 PM
Isalcordo: Thank you for agreeing with me about my proposal that the US Treasury should start buying gold using fiat money, while the US dollar is still good, even when this will push the market price of gold to as much as $50,000.00/ounce, emphasizing that the US government should USE whatever NEWLY ACQUIRED HOARDS OF GOLD to pay back, in full or portions of it, the 14+ trillions of debts. The first priority to be paid should be those nations which could become HOSTILE to the United States in the long term.
Bischoff: I agree that it is perfectly alright for private individual and businesses to exchange their 'irredeemable' USD/FRN in the precious metals markets for gold. Gold is today, as it has been for the last 3,000 years, the universally accepted 'standard of value'. Since the USD/FRN does not have a 'standard of account' expressed in quantities of gold, the 'price' of gold expressed in USD/FRN per ounce of gold is really the value of the USD/FRN expressed in terms of quantities of gold, meaning the price of gold as $1,500/ounce being in essence $1 USD/FRN being valued at 1/1500 of an ounce of gold. That is the result of the fact that the USD/FRN is not redeemable. Since Saudi Arabia agreed in the late 1970s to only quote their oil in USD/FRN, and since Saudi Arabia is the lowest marginal cost oil producer, Saudi Arabia sets the world oil price. The value of the USD/FRN therefore depends directly on the value of a barrel of Saudi crude. Yet, when you look at the value curves of gold vs. oil in terms of USD/FRN, you will find that there exists a 1:1 relationship.
My point is that purchases of gold in the precious metals market in the amount of 14.3 trillion USD/FRN, (the amount of government debt monetized over and above all the debt already paid off with productivity by the American taxpayer through their annual federal income tax payments) will drive the price of a barrel of crude oil into the stratosphere.
The value of the 'irredeemable' USD/FRN doesn't lie in how much (or how little) gold it will fetch, the value of the USD/FRN lies in its ubiquity and the fact that it is kept as reserve currency by most governments, because crude oil is quoted in USD/FRN only. Using the USD/FRN to buy up gold in the precious metals market would:
1. Collapse the value of the USD/FRN totally as a reserve currency.
2. Force the metals exchanges to activate their 'force majeure' clauses.
In other words, it simply is impossible to exchange 14.3 trillion USD/FRN for gold in the metals markets. With this many irredeemable USD/FRN entering the markets, gold will simply go into backwardation. This would mean that gold is simply no longer be for sale. The USD/FRN is worth something, if it is exchanged for oil. It quickly becomes worthless if it is used in large amounts to acquire gold.
Isalcordo: gold and silver producers, sellers, and their drumbeaters who will be the beneficiaries of this shift from a purely fiat money to gold/silver-backed paper money to stabilize the US dollar as a world reserve currency.
Bischoff: Gold is Money and nothing else. However, gold is a poor currency. This does not mean that gold is no longer the universally acknowledged 'standard of value'. Under a 'redeemable' currency system, gold miners and refiners can make a profit by using their gold for discounting Real Bills or by purchasing 'gold bonds'. Under an 'irredeemable' currency system, they have to offer their refined gold for sale at the highest 'price' to people who want escape 'irredeemable' currency to secure their savings in the form of gold.
While a monetary metal in the past, silver is today only an industrial commodity. Nothing can stabilize the irredeemable USD/FRN. Not gold nor silver could stabilize it. It is headed to oblivion. The interest due on the outstanding USD/FRN debt has compounded to exceed the original debt. When that happens, there is no recovery. I propose to create a 'redeemable', parallel currency available to exchange for USD/FRN. This will allow people to at least save some of their assets from total loss in an orderly market fashion.
Isalcordo: Thank you for all your comments, Professor Bischoff. I hope DB will take up my challenge to bring our conversations to a wider public discussions if not debate.
Bischoff: Thank you Professor Alcordo for engaging with me. The DB is a great platform for discussing many matters in detail with knowledgeable and engaged readers. The subject about which we exchanged ideas is very high on the list of the DB in reader interest. I am sure that we will have the opportunity to exchange views in the future here on the DB site.
Ingo Bischoff
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Posted by isalcordo on 05/16/11 06:09 PM
Bischoff: "And as I mentioned before, using fiat dollars to purchase physical gold in the 'precious metals market' is fine.."
Isalcordo: Thank you for agreeing with me about my proposal that the US Treasury should start buying gold using fiat money, while the US dollar is still good, even when this will push the market price of gold to as much as $50,000.00/ounce, emphasizing that the US government should USE whatever NEWLY ACQUIRED HOARDS OF GOLD to pay back, in full or portions of it, the 14+ trillions of debts. The first priority to be paid should be those nations which could become HOSTILE to the United States in the long term.
If DB agrees with our common position, those in DB should give this idea a BIG PUSH by bringing it to the attention of US law makers of all parties as well as with the gold and silver producers, sellers, and their drumbeaters who will be the beneficiaries of this shift from a purely fiat money to gold/silver-backed paper money to stabilize the US dollar as a world reserve currency. (Silver comes into the picture for minted gold coins of various purity to accommodate varrious values).
Bischoff: 'To sell the gold at Fort Knox for 'Faith-based' USD/FRN is the looniest idea I have ever heard, and I mean no disrespect to you.'
Isalcordo: I totally agree with you that 'To sell the gold at Fort Knox for 'Faith-based' USD/FRN is the looniest idea.'
And not only that, it is also FINANCIAL SUICIDE for the US as I commented to a WP Article | 2011-05-16: 'U.S. should sell assets like gold to get out of debt, some economists say' by Joel Achenbach (The Washington Post).
You simply misunderstood my posts. How could I suggest selling the Fort Knox gold and at the same time proposing a massive buying of gold at the same time? Remember my mentioning Machiavelli? It is because it is not really the 'old gold hoard' that will be used to pay the US debts but the new hoard purchased with fiat money. The Fort Knox gold remains in Fort Knox.
Thank you for all your comments, Professor Bischoff. I hope DB will take up my challenge to bring our conversations to a wider public discussions if not debate.
Dr. I. S. Alcordo, Ph,D.
Click to view link
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Posted by Bischoff on 05/16/11 04:14 PM
Isalcordo: I sympathize with the true citizen-owners of this gold reserve, if this was truly confiscated, but it is now impossible to determine who really owns these bricks of gold except to say that it belongs to the individual states or to the United States.
Bischoff: Of course, it is fine to extent sympathy for the confiscation of one's property. However, would you be satisfied to receive my sympathy as acquiescence to the theft of your property? I think not.
In the effort to determine who really owns the bricks of gold stored at Fort Knox, one thing is very clear, they do not belong to the individual states nor much less to the Federal Government. F.D.R.'s Executive Order 6102, concurred in by Resolution of the U.S. Congress, ordered confiscation from and prohibition of further holding of gold. This order was directed at private, individual citizens of the separate states. It is entirely immaterial whether the bricks of gold at Fort Knox can be traced back to the original owner. The culprit in the theft of the gold was the Federal Government. There is gold is stored at a Federal Government facility at Fort Knox, and the original owner of the gold and/or his descendants have a claim to that gold. That is the Law. Collectivist, big government excuses do not change those legal facts.
Isalcordo: 'But the citizens really do not profit from that position one way of the other as individuals, but only collectively depending on how wisely this gold reserve will be used to solve the common problem of the American people - particularly the burden of paying the US debt through increased taxation coupled with drastic cuts in social safety nets for the needy or the shame of national bankruptcy.'
Bischoff: The individual citizens were not consulted about the confiscation of their gold. It was an elitist, dictatorial act. This same elitist, dictatorial sentiment is found in your argument that the people's gold at Fort Knox should be used by the thief (the Federal Government) to solve the common problem of the American people. I couldn't disagree more. There is no common problem. It is the Federal Government alone which has a problem. It usurped powers the U.S. Constitution did not give it, and thereby got into trouble. Now it wants the American people to bail it out. Sorry, I am not interested.
Isalcordo: World trade between the United States and other nations and between nations has become so massive in volumes and values that the old "Real Bill" doctrine of banking and finance have been declared by most economists as impractical. International trade and the need of a world reserve currency is like a GENIE that escaped from its bottle-prison that cannot be made to return into its bottle anymore. We just have to live with it . . . and find ways to take advantage of it.
Bischoff: You may not know it, but the overall world trade in real terms was larger in 1890 than it was in 1990. All of this international trade was financed with International Bills of Trade cleared at London. What most economists tell me on this subject frankly doesn't interest me. When F.D.R. was about to issue his XO 6102, seven hundred business professors and economists send him an open letter asking him not to do it. Five years later, not a single of those individuals was willing to speak out against F.D.R.'s confiscation of the people's gold. Why would I seek confirmation in my thinking by listening to other economists? There isn't a professor gutsy enough to teach Adam Smith's Real Bills Doctrine in a university today. There is a basic principle contained within this doctrine which acknowledges the property rights of the individual. Central bankers and the Federal Government are utterly and totally opposed to the implementation of the Real Bills Doctrine by commercial banks, and it isn't because time itself has rendered it unworkable. This 'GENIE' talk sounds good, but it is a mere smoke screen to divert people's understanding of how the Real Bills Doctrine really works.
Isalcordo: And as I suggested, using fiat US dollar, while it is still good, to purchase as much physical gold as possible within a reasonably short time is one way to take advantage of the situation. This is not a Machiavellian act of the American people to solve its debt problem, for in the end, the gold sellers (gold producers and large quantity-sellers) also be benefitting from it.
Bischoff: And as I mentioned before, using fiat dollars to purchase physical gold in the 'precious metals market' is fine. To sell the gold at Fort Knox for 'Faith-based' USD/FRN is the looniest idea I have ever heard, and I mean no disrespect to you.
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Posted by isalcordo on 05/16/11 02:00 AM
Bischoff: "The problem is that the 8,340 tons of gold at Fort Knox must be looked upon as the gold confiscated from the sovereign citizens of the separate states by the Federal Government in 1933. This gold does not belong to the Federal Government. It belongs to the citizens of the separate states. It cannot be used by the Federal Government to rescue the value of a "Faith-based" currency which it, and it alone could issue."
Isalcordo: I sympathize with the true citizen-owners of this gold reserve, if this was truly confiscated, but it is now impossible to determine who really owns these bricks of gold except to say that it belongs to the individual states or to the United States. But the citizens really do not profit from that position one way of the other as individuals but only collectively depending on how wisely this gold reserve will be used to solve the common problem of the American people - particularly the burden of paying the US debt through increased taxation coupled with drastic cuts in social safety nets for the needy or the shame of national bankruptcy.
My proposal, I believe, is the wisest use of this resource before the US offers the massive Federal real estates as payments for its debts.
Bischoff: Before 1933, businesses themselves determined the size of the monetary supply of a "redeemable" currency. The monetary supply expanded or contracted with the number of Real Bills available for discount by the commercial banks. That portion of the "redeemable" currency which was not used by a wage earner for consumption purchases could be redeemed by him for gold to use as savings or investment in "gold bonds".
Isalcordo: World trade between the United States and other nations and between nations has become so massive in volumes and values that the old "Real Bill" doctrine of banking and finance have been declared by most economists as impractical. International trade and the need of a world reserve currency is like a GENIE that escaped from its bottle-prison that cannot be made to return into its bottle anymore. We just have to live with it . . . and find ways to take advantage of it.
And as I suggested, using fiat US dollar, while it is still good, to purchase as much physical gold as possible within a reasonably short time is one way to take advantage of the situation. This is not a Machiavellian act of the American people to solve its debt problem, for in the end, the gold sellers (gold producers and large quantity-sellers) also be benefitting from it.
Non-use of gold in industry due to its market price and its replacement with silver whenever possible should help avoid inflation, except in jewelry and highly luxurious made-to-order items.
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Posted by Bischoff on 05/15/11 11:13 PM
@ Dottie
"Is it really possible that "our" gold has been sold into the physical market? And that Ft. Knox is just another fraud?"
That is very unlikely. The gold left at Fort Knox is about 8,340 ton after the last count.
First, the gold at Fort Knox is safe-guarded by the U.S. Military. Access to it is almost impossible, even for the highest federal politician. There is no one more interested in keeping this gold safe than is the U.S. Military. It provides security to purchase material, if a war situation became dire enough to have to pay for war materials with gold.
Second, much of the gold that is traded on the exchanges these days is gold which was "leased". The lease rate was very low and the trading profits very high. In these deals, the gold stayed on the books of the Fed or Treasury as an asset while it was leased out. However, if the lessee was Lehmann Bros. or Bear, Stearns you can now kiss delivery on the gold contracts backed by leased gold good bye. LB and BS are bankrupt.
That's about the story of it, Dottie.
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Posted by Bischoff on 05/15/11 10:54 PM
@ Ilsacordo
I quite understood what you meant by using the "irredeemable" USD/FRN and turning it into a "redeemable" currency by apportioning the 8,340 tons of gold stored at Fort Knox. However, to back the 14.3 trillion USD/FRN in outstanding debt with that gold is not a wise solution.
The problem is that the 8,340 tons of gold at Fort Knox must be looked upon as the gold confiscated from the sovereign citizens of the separate states by the Federal Government in 1933. This gold does not belong to the Federal Government. It belongs to the citizens of the separate states. It cannot be used by the Federal Government to rescue the value of a "Faith-based" currency which it, and it alone could issue.
When the Federal Government chartered the First and Second Banks of the United States to pay off war debts with irredeemable currency (War of Independence and War of 1812), the individual states gave their approval. They limited the charters to create such currency to 20 years each, and they wisely did not extent these charters.
When the Federal Reserve "central bank" was created with the 1935 Banking Act, the individual states had no input. The Fed central bank created by the 1935 Banking Act wasn't limited in duration of its existence either. The post-1935 Federal Reserve System essentially is a conspiracy of federal politicians with central bankers to control the American citizenry.
Before 1933, businesses themselves determined the size of the monetary supply of a "redeemable" currency. The monetary supply expanded or contracted with the number of Real Bills available for discount by the commercial banks. That portion of the "redeemable" currency which was not used by a wage earner for consumption purchases could be redeemed by him for gold to use as savings or investment in "gold bonds".
The Federal Government interfered with the people's ability to save for their old age by robbing them of their gold and their investments. As a compensation for taking the people's gold, the Federal Government in 1935 passed the Social Security Act to keep people down the years from impoverishment. You cannot save an "irredeemable" currency. Such currency is good for consumption purchases, but no good as savings. The federal politicians dare now call Social Security a federal benefit to old people. What a joke...!!!
The Federal Government, and the Federal Government alone is responsible for the 14.3 trillion in debt. It has used the 16th Amendment to treat the sovereign individuals of the separate states as serfs. It sent the IRS after them to extort from them the "money" to pay for the Federal Government's debts, including the exploding interest due. Only the Federal Government and its Fed Central Bank are responsible for every FRN loaned into existence (and all USD/FRN are loaned into existence).
The individual, sovereign citizens of the separate states are treated as serfs and put into bondage to repay the debt with real value (their productivity). The argument that people voted for the system is specious. Once the federal politicians understood that they could assure themselves of reelection by using the central bank to pay off constituents, the welfare of the average American was doomed. The founding fathers must have turned over in their grave when the 16th and 17th Amendments were ratified.
TAs I mentioned, the post-1971 USD/FRN has a negative value, because it is monetized debt. To take the people's gold, safe-guarded by the U.S. Military at Fort Knox, as you suggest, and to try to stave off the ire of people who find out that their faith was misplaced, is not an answer. The Dodds and Franks of the U.S. Congress will ultimately be exposed, along with some of their predecessors going back to the 1930s.
If you are unfortunate enough to hold your savings and investments denominated in USD/FRN's, it is up to you to find someone willing to give you something worthwhile for them, before the faith in a "Faith-based" currency decreases still more or will eventually expire.
My suggestion to have the states charter commercial banks again, and to create a "redeemable" currency by acquiring Real Bills, will allow people to at least have an opportunity to correct their mistakes by securing some of their savings and investment in USD/FRN through exchanging them for a "redeemable" currency in the FX market. With the creation of a parallel, redeemable currency, the sovereign citizens of the separate states are then in charge again of a currency which has a positive value, unlike the currency created under the auspices of the Federal Government.
To assure that federal politicians never, ever threaten the freedom and liberty of the American people again, the American people would be wise to see that the 16th and 17th Amendment are repealed.
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Posted by dotti on 05/15/11 09:20 PM
Since the feedbackers have turned their posts to gold, I would like to pose a question.
Many believe that Ft. Knox does not hold the same amount of gold that it once did--and perhaps only a small fraction.
With gold, there are records of how much is mined, refined and sold annually. If large amounts of physical gold were sold into the markets, wouldn't the records reflect that? Is it really possible that "our" gold has been sold into the physical market? And that Ft. Knox is just another fraud?
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Posted by isalcordo on 05/15/11 07:48 PM
Bischoff: "A gold standard has nothing to do with 100% gold backing of a currency. If you want to use your deposit receipt (gold certificates) as a currency, that is your business. However, you will find that such currency is entirely unworkable for a modern economy."
Isalcordo: When I suggested that the US Treasury purchase gold using current fiat money, while the US dollar is still acceptable to the world, and pushing its buying price of gold to as much as $50,000.00 per ounce over a reasonable period of years was to monetize the current US gold reserve of some 8 tons so as to cover the present US debts of 14+ trillion dollars. At this point, the US could then pay off in full all its creditors with the same US currency, now backed by gold, or using certtificates of gold deposits.
That gold producers and large quantity sellers, private and governments, will find this acceptable is the fact that my proposal also backs up the US dollars they will receive for their gold by the same physical gold they delliver. They may not even be paid with US dollars but "Certificates of Deposits" redeemable in US dollars, or gold at the price of their deivery plus some mark ups for adminsitrative costs, costs of deliver, storage, and profits.
And the 8 tons or so of the original gold reserve of the country may still remain in US vaults but now valued at $50,000.00, $25,000.00, $12,500.00, or $6,250.00 per ounce depending on how much the US government would like to reduce its outstanding debts and FIX IT AT THAT as the base for the
new gold-backed US paper money or gold standard for the United States.
I believe that the world then, as now, will follow the US move to the NEW GOLD STANDARD.
I will comments on your other points as my time alows.
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Posted by Bischoff on 05/15/11 12:01 PM
A gold standard has nothing to do with 100% gold backing of a currency. If you want to use your deposit receipt (gold certificates) as a currency, that is your business. However, you will find that such currency is entirely unworkable for a modern economy.
We need a "redeemable" currency which uses the universally accepted "standard of value", GOLD, with which to set a "standard of account" (Section 8, Article I of the U.S. Constitution) for the U.S. Dollar (last set to be 1/42 of an ounce of gold).
"Also, if $42.00 today is all one needs to get 1.0 ounce of gold, what US administration, or any government for that matter, will redeem today's fiat money with gold?"
This question shows that there is a confusion between the "irredeemable" Federal Reserve Note, to which the U.S. Congress attached the denomination "U.S. Dollar", and the U.S. Dollar defined by the U.S. Congress to be 1/42 of an ounce of Gold. An "irredeemable" Federal Reserve Note denominated in USD is not a currency created that conforms to the provision of Section 10, Article I of the U.S. Constitution.
Only the federal government can create an "irredeemable" currency. They did this by establishing the "Federal Reserve" central bank to exist without a time limit through provisions in the Banking Act of 1935. They authorized the post-1935 "Federal Reserve System" (the post-1935 Fed has nothing to do with the pre-1935 Fed) to create a currency by monetizing sovereign government debt.
Since 1935, the American people have had nothing but "Faith-based" currency (accept for a few silver certificates and silver coins). When Nixon defaulted on the 1944 Bretton Woods Agreement in 1971, the rest of the world was left with nothing BUT "Faith-based" currencies.
Now that the faith in the USD/FRN is vanshing, and its value is highly suspect, it is time to resurrect the "redeemable" currency which "commercial banks" created for a 185 years until 1933, using the Real Bills Doctrine and gold.
The original Federal Reserve Act of 1913 created a national currency under which the provisions of Section 10, Article I of the U.S. Constitution were observed. The Federal Reserve Note which it authorized to be created under its auspices required backing by Real Bills and gold. Anticipation Bills (government debt) were expressly declared ineligible to be monitized by the 1913 FRA.
The big money center banks (NY Fed Region) sabotaged the original Federal Reserve Act by illegally conducting "Open Market Operations" in the 1920s (monetizing government debt).
When in 1933 the banks refused or were unable to redeem FRNs for gold, the 1913 FRA monetary system collapsed. Instead of punishing the people who were responsible for collapsing the monetary system, the U.S. Congress authorized their rogue acts retroactively in 1934. The offending banks got their way to "legally" monetize debt with the provisions in the 1935 Banking Act.
Of course, the system itself cleverly kept the name "Federal Reserve" to imply to the public that the States had a hand in creating the post-1935 Fed, as they did in creating the pre-1935 Fed.
Nothing could be further from the truth. The voice of the separate, individual States was eliminated from the U.S. Congress by 1935. By then, the U.S. Senate had been totally coopted by the NY bankers, made possible by the ratification of the 17th Amendment.
If the Congress won't strip the "legal tender" protection from the USD/FRN, then let the States repeal the 17th Amendment. Once the separate States get back their voice back in the U.S. Senate, the "irredeemable" USD/FRN is doomed.
There really is no choice. A return to a "redeemable" currency is a must, if this country is to survive.
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Posted by isalcordo on 05/15/11 03:02 AM
1971 is a long, long way off from 2011. Also, if $42.00 today is all one needs to get 1.0 ounce of gold, what US administration, or any government for that matter, will redeem today's fiat money with gold.
Also, how can the world's 30.574.9 tons of gold (World Gold Council, May 2011 statistics) back up the fiat world currencies worth probably several hundreds of trillions in US dollars with gold pegged at $42.00/ounce?
My proposal may be a looney idea, but to suggest that in order to go back to the gold standard the world must price gold back at 1/42 ounce to 1 US$ is a non-starter. And to insist that gold hoards of governments cannot be monetized, that is, fixed at a new value other than what it was in 1971 in terms of a world reserve currency, is simply an academic statement and not a solution to the question of how the world can shift backk to the gold standard.
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Posted by Bischoff on 05/15/11 01:50 AM
Returning to the gold standard has nothing to do with monetizing the existing above ground inventory of gold. It's a down right looney idea.
The post August 15, 1971 USD/FRN is an "irredeemable currency". Anyone who excepted it should have known that it was a strictly "Faith-based". Now that people have lost faith in it, to set $1 USD/FRN equal 1/50,000 of an ounce of gold is down right ludicrous.
If you want to return to the gold standard, repeal the "legal tender" protection of the USD/FRN by changing the 1982 Coinage Act (USC 31, Paragraph 5103). Stripping the USD/FRN of its "legal tender" protection will make possible again the creation of a "redeemable" currency to compete with the "irredeemable" USD/FRN. The FX markets will settle any difference in their value.
With the issuance of a "redeemable" currency by a commercial banking system using gold and Real Bills, businesses again will be able to keep their books in terms of a currency having a fixed accounting standard (1/42 of an once of gold for $1 U.S. Dollar as last set by the U.S. Congress in January of 1971).
People will again enjoy a "redeemable" currency suitable to be used as savings for their old age, thereby negating the necessity for Social Security Survivor and Old Age Benefit legislation.
The return to the gold standard is almost a given. The only question is, will it be done before all faith in the "Faith-based" USD/FRN has been lost, or is there possibly enough sense left in the U.S. Congress by acting now.
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Posted by Wayne on 05/14/11 09:43 PM
Reading some other articles by Soddy, and I'm finding a familiar pattern.
There were many competent professionals who warned against the coming "
Collectivism'/Planned Economy.
And most of their names, and their works, have now been consigned to the rubbish bins.
The victors write the books, and control the future by rewriting the past.
The sad truth that this generation must deal with is that what is taught as history is a lie.
"History is more or less bunk. It's tradition. We don't want tradition. We want to live in the present and the only history that is worth a tinker's dam is the history we made today."
Each generation must again discover truth for itself or be the slaves to those who claim authority over them based on an unprovable claim of what happened in the past, found in a book written by them of course.
Henry Ford, Interview in Chicago Tribune, May 25th, 1916
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Posted by isalcordo on 05/14/11 08:43 PM
Below is a very recent and interesting prediction by Forbes. In my earlier posts, I suggested the way how the United States could shift from fiat money to the gold standard within five years. Since the gold stardard requires the market, or alternatively an international world body, to FIX the value of gold "once and for all" or "once in a lue moon," if at all, this would mean that the market price of gold per ounce may have to be pushed from the present $1,500.0 to as much as $50,000.00/ounce, in the case of the US if it were to cover its debts of 14+ trillions with physical gold. So Schiff was right on reporting the rush of institutions to increase their gold holdings.
Dr. I.S. Alcordo
Click to view link
Forbes Predicts U.S. Gold Standard Within 5 Yearsby Paul Dykewicz
05/11/2011Here is a smalll part of the report:
"A return to the gold standard by the United States within the next five years now seems likely, because that move would help the nation solve a variety of economic, fiscal, and monetary ills, Steve Forbes predicted during an exclusive interview this week with HUMAN EVENTS.
'What seems astonishing today could become conventional wisdom in a short period of time,' Forbes said.
Such a move would help to stabilize the value of the dollar, restore confidence among foreign investors in U.S. government bonds, and discourage reckless federal spending, the media mogul and former presidential candidate said. The United States used gold as the basis for valuing the U.S. dollar successfully for roughly 180 years before President Richard Nixon embarked upon an experiment to end the practice in the 1970s that has contributed to a number of woes that the country is suffering from now, Forbes added. Read the full report here: (Click to view link)
Paul Dykewicz is the editorial director of the Financial Publications Group at Eagle Publishing Inc., Click to view link, of Washington, D.C. Eagle publishes two free, e-letters, five weekly trading services and four monthly investment newsletters, Forecasts & Strategies, Successful Investing, High Monthly Income and Global Stock Investor.
--------------------------------------------------------------------------------
Sponsored Conte
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Posted by Wayne on 05/14/11 08:19 PM
Frederick Soddy Quote
"The whole profit of the issuance of money has provided the capital of
the great banking business as it exists today. Starting with nothing
whatever of their own, they have got the whole world into their debt
irredeemably, by a trick.
This money comes into existence every time the banks 'lend' and
disappears every time the debt is repaid to them. So that if industry
tries to repay, the money of the nation disappears. This is what makes
prosperity so 'dangerous' as it destroys money just when it is most
needed and precipitates a slump.
There is nothing left now for us but to get ever deeper and deeper
into debt to the banking system in order to provide the increasing
amounts of money the nation requires for its expansion and growth.
An honest money system is the only alternative."
This says it all!
Your "prosperity" depends on your remaining a debt slave!
Talk about "No Exit"
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Posted by Wayne on 05/14/11 07:46 PM
"Wealth, Virtual Wealth & Debt"
Just took a quick look a the book
Very interesting!
Thank you for this reference.
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Posted by F_Beard on 05/14/11 05:44 PM
There should be no national debt in the first place and it should be payed off as it comes due with new, debt-free fiat.
A government has a sovereign right to issue money. However, that money should only be legal tender for debts to that government, taxes and fees, not private ones. This is in accord with [a href="Click to view link 22:16-22&version=NASB"]Matthew 22:16-22[/a] ("Render to Caesar ...").
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Posted by Jones on 05/14/11 05:12 PM
Here is a quote on the banking system that you do not hear very often…
'There is nothing left now for us but to get ever deeper and deeper into debt to the banking system in order to provide the increasing amounts of money the nation requires for its expansion and growth.
Our money system is nothing better than a confidence trick..
.
The 'money power' which has been able to overshadow ostensibly responsible government is not the power of the merely ultra-rich but is nothing more or less than a new technique to destroy money by adding and withdrawing figures in bank ledgers, without the slightest concern for the interests of the community or the real role money ought to perform therein… to allow it to become a source of revenue to private issuer's is to create, first, a secret and illicit arm of government and, last, a rival power strong enough to ultimately overthrow all other forms of government.
…An honest money system is the only alternative.'
~ Dr. Frederick Soddy, Nobel Prize Winner, 1921
author of Wealth, Virtual Wealth & Debt
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Posted by Bischoff on 05/14/11 05:08 PM
We are long past the time when Milton Friedman's monetary theories worked.
Friedmanite theory limited the growth of the aggregate money supply to the increase in productivity in the American economy.
There was a time when a $1 of monetized debt would would increase productivity $2. Over time, Friedmanite money creation principles caused a $1 of debt to only return a $1 in productivity. A few years ago, a $1 of debt effected only $0.75 of additional productivity. In other words, by that time, the more the government monetized debt, the more the economy shrank.
It is one thing to charge your credit card and pay off the balance at the end of the month. It is quite another thing to keep charging your credit card and making only the minimum payment. You keep doing that, and at a certain point the compounding interest you owe will grow larger then the money you borrowed on your credit card in the first place. At a certain point, the credit card issuer will put a stop to your charging and let you payoff your interest and principal before he'll extent any further credit.
The federal government is no different. Its credit cards are issued by China, Japan and other countries, as well as domestic bond holders. When productivity increase drops below the value of monetized debt, it amounts to making minimum payment on your balance while interest keeps compounding and your overall debt keeps growing larger and larger.
Regardless of the purpose for which the government goes into debt, the interest on the debt always needs to be paid. At this point in time, the interest has compounded to exceed the size of the original debt, and the compounding interest keeps increasing the overall debt by the minute. That is why the "credit card" issuers like China, Japan, etc. have shut off credit. They are no longer purchasing U.S. Treasury debt denominated in USD/FRNs.
What is the solution? Carter Bonds...???
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Posted by Wayne on 05/14/11 04:53 PM
"This is rather astute, and a point many fail to grasp. Even in bankruptcy of an entity, money has not "left" the system; perhaps it has not been transferred to whom it is contractually owed, but it is in the system nonetheless. Buying gold does not cause money to leave the system. Only one thing does; it is called a mattress."
Yep!
All that occurs is a transfer of ownership of the assets, whose value is reduced by a some charges for legal and handling of the problem.
And the PE know statistically that the majority of debtors will default, guaranteeing them (PE) the return of the "money" that is fueling the bullish illusions of the majority.
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Posted by Wayne on 05/14/11 04:42 PM
Correct!
"Now we have the same spectacle raised to a societal level. But there are differences. The debt being laid on us is assumed by an 'implied contract'. The debt did not go towards buying any asset which might further our ability to generate future products to enhance our lives. The money was consumed, the products purchased with it have been eaten or burned. We are now 'implied' to be on the hook for the rest of our useful lives and the lives of our offspring to pay for what is now bubbling away in cesspools or blown to shards in a god-forsaken foreign hellhole."
It's all based on the the doctrine of "implied consent"
Interesting how closely the doctrine of "implied consent" comes to matching the "guilt by blood" concept.
Your great-great-grandfather agreed to this, so you are bound by it.
It's all just another way to continue the tradition of slavery.
If I can commit to something, and then stick you with the consequences, you are my slave in reality.
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